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					                                                                                                            HB 1337
                               Department of Legislative Services
                                         Maryland General Assembly
                                               2000 Session

                                                 FISCAL NOTE
                                                    Revised

 House Bill 1337 (Delegate Krysiak, et al.)
 Commerce and Government Matters
                                                                                                Referred to Finance
                                  Credit Regulation - Mortgage Lending


This bill requires licensed mortgage lenders to notify the Commissioner of Financial
Regulation in writing of a proposed change in location or ownership and obtain the
Commissioner’s approval. The bill requires the Commissioner to examine a licensed
mortgage lender at least once during any 36-month period. The bill increases the fee a
licensee must pay for an examination or investigation and clarifies the conditions under
which the Commissioner may suspend a license. The bill changes a violation of the
Maryland Mortgage Lender Law from a misdemeanor to a felony.

                                                 Fiscal Summary

State Effect: General fund expenditures could increase by $469,900 in FY 2001, reflecting
the bill’s October 1, 2000, effective date. Out-year projections reflect annualization and
inflation. General fund revenues could increase by $134,000 in FY 2001. Out-year
projections reflect annualization, and industry growth and attrition.

       (in dollars)           FY 2001             FY 2002             FY 2003              FY 2004          FY 2005
 GF Revenues                     $134,000           $180,500             $182,300             $184,100        $186,000
 GF Expenditures                 $469,900           $573,900             $592,100             $611,100        $631,000
 Net Effect                    ($335,900)         ($393,400)           ($409,800)           ($427,000)      ($445,000)
Note: ( ) = decrease; GF = general funds; FF = federal funds; SF = special funds; - =indeterminate effect


Local Effect: Potential minimal increase in revenues due to a change in court jurisdiction.
Expenditures should not be affected.

Small Business Effect: Meaningful.

                                                        Analysis
Bill Summary: This bill requires licensed mortgage lenders to notify the Commissioner of
Financial Regulation in writing of a proposed change in location or ownership and to obtain
the Commissioner’s approval. The Commissioner must approve or deny a request for
approval of a change in ownership or location within 60 days after receiving it, or the request
is deemed approved. For a change in ownership, the Commissioner may require the licensee
to provide information necessary to determine whether a new application is required because
of a change of control.

The bill requires the Commissioner to examine a licensed mortgage lender at least once
during any 36-month period. New licensees must be examined within 18 months from the
date the license is issued. The bill increases the fee a licensee must pay, to $250 per day, for
each of the Commissioner’s employees working on an examination or investigation. The bill
clarifies the conditions under which the Commissioner may suspend a license.

The bill removes the requirement that a violator of the Mortgage Lender Law must have
failed to comply with a cease and desist order before the Commissioner may impose a civil
penalty. The bill also changes violation of the Mortgage Lender Law from a misdemeanor to
a felony and subjects violators to a maximum penalty of a $50,000 fine and/or ten years
imprisonment.

The bill also provides that a finder’s fee by a mortgage broker, when authorized, must be by
written agreement and be separate and distinct from any other document. The broker must
provide a copy to the borrower within ten business days after completion of the loan
application.

Current Law: A mortgage lender, with certain exceptions, must obtain a license under the
Maryland Mortgage Lender Law. A licensee may not change the place of business without
notifying, and receiving consent from, the Commissioner. If the Commissioner does not
approve or disapprove of the proposed change of place of business within 30 days of the
mailing of the licensee’s notice, the proposed change of place of business is deemed
approved. A licensee who fails to provide timely notice is subject to a $500 surcharge and
must file an application for a new license, along with application and investigation fees. The
Commissioner is required to examine each licensee’s business in accordance with an
established schedule. A licensee must pay $100 per day for each of the Commissioner’s
employees working on an examination or investigation. In an investigation, the
Commissioner may: (1) examine the books and records of a licensee or any other person
who the Commissioner believes has violated the Mortgage Lender Law; (2) subpoena
documents or other evidence; and (3) summon and examine under oath any person whose
testimony is required. A violation of the Mortgage Lender Law is a misdemeanor punishable
by a maximum penalty of a $5,000 fine and/or one year imprisonment.

HB 1337 / Page 2
Background: Recent reports in The Baltimore Sun revealed instances in which distressed
houses were bought cheaply and then, after having received inflated appraisals, resold for
significantly higher amounts. Often, the properties were sold to unsophisticated buyers with
limited resources, poor credit histories, and a strong desire to own a home. After closing,
such a buyer could experience difficulty paying the mortgage and be unable to refinance,
because of an inflated original mortgage. The buyer may then be forced to default on the
loan.

State Fiscal Effect: Although examinations of mortgage lender by the Commissioner vary
in length and in the number of examiners required, the average examination requires two
days to complete. Currently, the Commissioner completes approximately 500 examinations
per year with a staff of five examiners and one supervisory examiner. Each licensee is
examined, on average, every five years. The bill would represent a significant increase in
workload, both because of the number additional examinations and the increased complexity
of examinations. In order to examine each licensee every three years, the Commissioner
would need to perform approximately 914 examinations annually, an increase of 414. It is
unknown how many change of ownership investigations would be required by the bill, but
the number is not expected to be significant.

General fund expenditures thus could increase by an estimated $469,900 in fiscal 2001,
which accounts for the bill’s October 1, 2000, effective date. This estimate reflects the cost
of hiring five examiners, one supervisory examiner, two administrative assistants, and one
administrative specialist to perform the additional examinations and investigations. It
includes salaries, fringe benefits, examiner travel and training, one-time start-up costs, and
ongoing operating expenses.

          Salaries and Fringe Benefits                                $238,300
          Examiner Travel & Training                                   185,200
          Other Operating Expenses                                      46,400
          Total FY 2001 State Expenditures                            $469,900

Future year expenditures reflect (1) full salaries with 4.5% annual increases and 3%
employee turnover; and (2) 1% annual increases in ongoing operating expenses.

General fund revenues could increase by approximately $134,000 in fiscal 2001. This
accounts for the bill’s October 1, 2000, effective date and assumes that 414 new
examinations would be performed under the bill at $250 each and an increase of $150 for
each of the 500 examinations currently performed each year. Out-year projections assume
2% industry growth and 1% industry attrition rates.


HB 1337 / Page 3
General funds totaling $491,375 were included in the fiscal 2001 budget contingent on the
passage of SB 872/HB 1337 for credit regulation of mortgage lenders, SB 830/HB 727 for
investigative and enforcement powers of the Commissioner, and SB 450/HB 516 for the
licensing of check cashing services.

Changing crimes from misdemeanors to felonies means: (1) that such cases will be filed in
the circuit courts rather than the District Court; and (2) some persons could eventually serve
longer incarcerations due to enhanced penalty provisions, applicable to some offenses, for
prior felony convictions.

Local Revenues: By changing these crimes from misdemeanors to felonies and creating the
additional felony, cases that could have been filed in District Court will be filed solely in the
circuit courts. The number of cases is assumed to be small. Accordingly, this bill should not
significantly increase local revenues resulting from the applicable monetary provisions.
Expenditures should not be affected.

Small Business Effect: Small business mortgage lenders will experience an increased
compliance cost due to the increased frequency of examinations and the increased cost per
examination.

                                  Additional Information

Prior Introductions: None.

Cross File: SB 872 (Senator Kelley, et al.) - Finance.

Information Source(s): Judiciary (Administrative Office of the Courts), Department of
Labor, Licensing, and Regulation (Commissioner of Financial Regulation); The Baltimore
Sun; Department of Legislative Services

Fiscal Note History:       First Reader - February 28, 2000
mld/jr                     Revised - House Third Reader - March 21, 2000
                           Revised - Enrolled Bill - May 3, 2000

Analysis by:     Ryan Wilson                               Direct Inquiries to:
                                                           John Rixey, Coordinating Analyst
                                                           (410) 946-5510
                                                           (301) 970-5510




HB 1337 / Page 4

				
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